The re-connection of western supply basins to eastern markets by the massive Rockies Express (REX) and other pipeline projects and the "somewhat delayed" arrival of more liquefied natural gas (LNG) imports suggests higher Henry Hub prices and "reasonable" western region locational basis, both of which will continue to facilitate development of domestic resources, according to Wood Mackenzie.
"The 'basis bridge' has been successfully completed," Walter Simmons, Wood Mackenzie principal for North American gas research, told Houston reporters Thursday during a press briefing. The basis bridge consists of REX as well as numerous west-to-east pipeline projects coming out of Texas and the Midcontinent to access eastern markets.
The major pipeline developments will continue to spawn additional upstream infrastructure growth, Simmons said. For instance, companies such as Enogex, Energy Transfer and Enterprise Products Partners are providing midstream services and developing feeder pipes to the larger projects in Texas and Oklahoma, Simmons noted. And in western Colorado, TransColorado and Questar are implementing projects to gather additional volumes into the Entrega pipeline to feed REX. And Questar also is implementing several projects to move gas westward to the Kern River pipeline, "assuring a sustaining supply portfolio there as well."
However, many Texas and Louisiana pipeline assets are at further risk for under-utilization as the supply push of western gas will result in further idling of upstream pipeline resources elsewhere, Simmons said. Indeed, upstream assets of numerous pipes "appear to be approaching 'stranded' status, near term, due to declining supplies and major new supply sources entering downstream," Simmons said. These are pipes running from the Gulf Coast region to the Northeast, which are being affected by East Coast LNG volumes as well as gas from the West.
And Gulf Coast LNG is "pushing into" an extensively altered Texas-Louisiana producing region gas flow dynamic. Western supplies carried by major infrastructure additions are being received downstream into existing pipeline market regions. And supplies from eastern LNG terminals -- Cove Point and Elba Island -- also are contributing to changes in upstream flow dynamics.
"All of those receipts have the potential to 'push-back' domestic supply into respective pipeline field zones for re-routing to alternative markets," Simmons said.
Finally, Simmons asked, where will the new gas supplies come from to keep today's infrastructure additions fully utilized in the longer term, 11 years from now and later? For one, feeder pipelines from other "near-by" resource plays will need to be built, Simmons said. And Alaska gas could eventually find its way to Alberta and then south to REX for the trip to eastern markets.
Simmons said the industry may not be finished with infrastructure expansion from western supply regions. The systems going in now have expansion capability (REX, for instance). "Upstream parties given a taste of higher netbacks/returns may do more, both upstream and downstream," Simmons said.
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